Labour and social protection institutions are important ingredients of economic growth, quality jobs and human development (Chapter 6). It is not possible to achieve economic diversification without active measures to tackle low product- ivity in agriculture and small and medium-sized enterprise, poor working condi- tion traps and high rates of informality. Sustained, strong growth is at risk if social inequality grows, or rent-seeking behaviour by owners of natural resources or land is allowed to continue unchecked.
Making such institutions more effective remains a serious challenge for many developing countries. Wage-setting mechanisms and labour regulations need to be properly designed and attention must be given to implementation capacity.
Developing with jobs
Despite these difficulties, there are many interesting recent innovations in this area. There is growing awareness of the role of minimum wages in fighting working poverty and inequalities, while promoting labour market participation. The report gives examples of how some developing countries have found innovative ways of setting and implementing minimum wages, including through social dialogue. Likewise, well-designed collective bargaining can have positive impacts on income distribution while also tackling informality and low-productivity traps. One major challenge is the decline in the coverage of collective bargaining – a trend also evi- dent in advanced economies.
The issue of employment protection, which has been the subject of lively debate but often without a systematic review of current practices, is carefully exam- ined in the report. Contrary to predictions, weaker regulations on employment have not facilitated transitions to formal employment. Instead, the report provides examples of countries, such as Argentina, that have tackled informality through pragmatic approaches, combining tax reform, social protection, faster registration processes for enterprises and better enforcement.